Housing plan aimed at keeping people in homes

Obama will roll out the policy today in Phoenix, which has a high foreclosure rate.

WASHINGTON — President Obama will roll out his much-anticipated housing plan today in an effort to stem the tide of foreclosures that has triggered the worst recession in decades.

The president will outline the plan during a speech in Phoenix, where home values have dropped 33% in the last year -- the steepest decline of any metropolitan area in the country. Across the nation, thousands of people continue to be forced from their homes every day.

Washington insiders expect the plan to focus on lowering monthly payments for some borrowers through a combination of lower interest rates, extended terms and even principal write-downs.

The foreclosure crisis has bedeviled policymakers for nearly two years, and several programs launched with great fanfare have had little success.

Obama has pledged to spend $50 billion to $100 billion of the remaining financial bailout funds approved by Congress last fall to help worthy but struggling homeowners stay in their homes.

Economists and policymakers agree that the rising tide of foreclosures is causing collateral damage to neighborhoods and communities as they lose residents, properties fall into neglect and the tax base erodes.

But previous efforts to reduce foreclosures have been thwarted by a central problem: How should the losses be shared among borrowers, lenders and the government?

The prevalence of bubble markets in areas including California, Florida and Nevada has raised other equity issues: Is it fair to use funds from taxpayers elsewhere in the country to help borrowers in those markets? And is it fair to use taxes collected from renters or those who made sensible financial decisions to bail out borrowers who were greedy or careless?

So far, lenders have been unwilling to write down the principal on troubled mortgages, in part because most had been bundled into complicated securities and it has been legally uncertain whether servicers had the right to alter the terms.

Congress tackled that problem last summer by passing a law known as Hope for Homeowners. Under that plan, the government would guarantee new mortgages for worthy borrowers if lenders would agree to write down the principal. But the program has had few takers so far.

One way of forcing lenders to reduce principal is by changing bankruptcy law. Currently, bankruptcy law permits judges to lower the principal for any consumer loan except a mortgage.

Obama has expressed support for the idea, which would require Congress to pass new legislation to amend the bankruptcy code.